Recession Signal - This Consumer Data is Alarming

By The Greek:

Bloomberg’s Consumer Comfort Index showed improvement today, but the abrupt change in the weekly measure is deceptive and perhaps simply influenced by pleasant weather in the population dense Northeast U.S. The index, while still deeply in negative territory, still reflects a troubled state of affairs. Furthermore, recent monthly measures of consumer sentiment have clearly shown cause for alarm, and for good reason.

Bloomberg’s Consumer Comfort Index improved for the week ended April 14 to a mark of -29.2. The magnitude of the 4.8 point improvement was unusual, only seen about 1.8% of the time. The gain was the biggest seen since December 2011, and the absolute value of the index was the highest it has been in five years. But there was a divergence in the groups of Americans measured, with lower income Americans remaining depressed. Considering that the real unemployment rate could be as high as 11.9% and real underemployment could reach 17.8%, this is an important segment of the nation today, and bigger than the government estimates.

Because of the divergence in wealth segments, I suspect the improvement could simply be the result of warmer weather in the Northeast. Obviously, I cannot prove this, but the cherry blossoms are blooming on 81st Street outside my window, and a pleasant feel fills the air.

Three component measures of the index gained last week, and the Personal Finances measure actually moved above the waterline. The tragic state of affairs is apparent nonetheless in the fact that most of the measures remain in deeply negative territory, with the index range from +100 to -100.

Component	Level
Personal Finances	+1.6
Current View of Economy	-54.7
Good Time to Spend	-34.6

Further evidence of the way consumers really feel today was provided by the most recent monthly measures of consumer sentiment. The Thomson Reuters/ University of Michigan Consumer Sentiment Index, reported last Friday, showed the index fell to a nine-month low in April. The measure of the consumer mood fell 6.3 points, to 72.3, the lowest it has been since July 2012. It caught economists by surprise, with the consensus forecast set at 78.5, according to Reuters.

Not long before Reuters’ reported on it, the Conference Board reported its Consumer Confidence Index for March dropped precipitously by 8.3 points to a mark of 59.7. Most of the decline was measured in expectations, which I have proposed in the past were raised after the U.S. government passed its debt ceiling and fiscal cliff tests. Those moves allowed stocks to rise in the first quarter, including consumer shares.

Security	Q1 2012
SPDR S&P 500 (NYSE: SPY)	+10.5%
SPDR Dow Jones (NYSE: DIA)	+11.9%
PowerShares (Nasdaq: QQQ)	+6.1%
Consumer Discretionary SPDR (NYSE: XLY)	+12.0%
SPDR S&P Retail (NYSE: XRT)	+12.8%

However, the declines seen in the monthly measures of the consumer mood probably better reflect reality, considering hopes were built on expectations and not the views of consumers about the present situation. What’s weighing on them today was verified to me by the simple statement of a simple friend, a gentlemen maintenance worker at my church, who said, “I don’t like Obama anymore.” I asked Vangelis why and he responded, “Because my taxes went up.”

The expiration of the payroll tax break was a failing of the government with regard to the fiscal cliff, and is weighing today on an already stressed American consumer. Furthermore, those 7.7 million Americans we are not counting today as part of the labor force are not employed (including the retirees), except for possibly undocumented work doing things like dog walking and odd jobs for cash. Such means of making a living is not going to inspire them to shop much. This situation must result in lighter consumer spending, and therefore, a slower pace of GDP growth. Indeed, even the Federal Reserve said a 1.5 percentage point drag could be expected for GDP this year because of the Sequester Spending Cuts and the payroll tax break expiration. Yet the Fed failed to include its own admission in its forecast this past March. This means a surprise could be in store when GDP is reported.

Retail Sales, reported for March last Friday, showed sales excluding autos and gasoline fell by 0.1%. Major retailers are no longer reporting their monthly same-store sales, and even that is indicative of bad times. Public companies are all the more likely to share good news and to keep bad news quiet if they can. The trend of many now joining the major names like Wal-Mart (NYSE: WMT) in refraining from such reporting could be an omen of a tough quarter ahead. The market share gains of discounters and bargain web retailers, like Amazon.com (Nasdaq: AMZN), Wal-Mart, Target (NYSE: TGT) and Costco (Nasdaq: COST) are indicative of the erasable era we live in. But what is troubling me most today is that these latest consumer mood measures show that how consumers really feel is alarming, and economic recession is all the more possible because of it.

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